ANTIDUMPING IN THE SPOTLIGHT: ZEROING

WTO Rejects U.S. Practice of Zeroing.

On January 9, 2007, the WTO Appellate Body ruled against the United States practice of "zeroing" in virtually every aspect of antidumping proceedings, overturning an earlier Panel decision that had largely ruled in favour of the practice.  U.S. Petitioning companies support "zeroing" because it results in a dumping margin even if only a handful of transactions are dumped out of a larger pool of sales.  Respondents view “zeroing” as creating, or inflating, dumping margins, by giving less than full “credit” for sales made at above fair value prices.

In a challenge brought by Japan and joined by other countries, the Appellate Body upheld the earlier Panel's determination that the U.S. "zeroing procedures" constituted a "measure" that could be challenged "as such" under WTO dispute procedures.  The Appellate Body's agreement with the Panel largely ended there, however.  In reviewing each of the specific applications of zeroing, the Appellate Body reversed the Panel decision and found that the U.S. zeroing practice was inconsistent with the Anti-dumping Agreement with respect to:

1. using a transaction-to-transaction calculation methodology in original investigations (so-called "simple zeroing");
2. using a weighted average to transaction methodology in periodic reviews (annual administrative reviews); and
3. maintaining zeroing procedures in new shipper reviews.  The U.S. had not appealed the Panel's finding against the U.S. on weighted average-to-weighted average zeroing in investigations.

The Appellate Body further held that zeroing, as applied to 11 specific periodic reviews and two sunset reviews, violated the Anti-dumping Agreement.  For investigations, the Appellate Body rested its determinations on Articles 2.4 and 2.4.2, finding that the specific methodologies in 2.4.2 were subject to the "fair comparison" provision of Article 2.4.  For reviews, the Appellate Body relied on Articles 2.4, 9.3, and 9.5, finding that the limitations in Article 9 on collection of duties in amounts "not to exceed the margins of dumping" required the use of methodologies that complied with Article 2.4's "fair comparison" test.

The U.S. has until February 20th to decide whether it will implement the WTO determination.  Once fully implemented, the elimination of the zeroing practice by the U.S. Department of Commerce is likely to eliminate dumping margins in many cases, and reduce substantially the margins in the remaining cases.  For a complete copy of the Appellate Body's determination, click here.

For more information, please contact Robert Lipstein at rlipstein@crowell.com or Elizabeth Abraham at eabraham@crowell.com in our Washington, DC office.

CUSTOMS IN THE SPOTLIGHT: HARMONIZED TARIFF SYSTEM

Changes to the Harmonized Tariff System Effective February 3, 2007. 

Acting pursuant to the Omnibus Trade and Competitiveness Act of 1988, the U.S. International Trade Commission continuously reviews the Harmonized Tariff System (“HTS”) and provides recommendations to the President when modifications to the tariff are warranted.  The President is authorized to approve the modifications to the HTS if they align with U.S. obligations under the HS Convention and support the economic interests of the U.S.

This year, the changes to the HTS were substantial.  More than 350 amendments were approved by the President, including 83 chapters and 240 headings.  Tariff headings were added and many were revised or deleted.  Chapters most affected were those dealing with industrial and high-technology products (chapters 84, 85, and 90).

As a result of the amendments, the trade community should review its tariff databases and make the necessary changes to ensure goods are properly classified under the new tariff system.  Visit http://hotdocs.usitc.gov/docs/tata/hts/pub3898.pdf to view the final draft of the modifications.  Immediate conformity with the modified HTS is imperative to avoid heavy fines, delays, and seizure of shipments.

To ensure a smooth transition to the modified tariff schedule, a grace period has been implemented.  Normally, the implementation period is 15-days, however, on December 9, 2006, legislation was passed extending the period to 30-days from the publication of the Presidential Proclamation in the Federal Register.  As the Presidential proclamation was signed on January 4, 2007, the HTS amendments will go into effect on February 3, 2007.  In addition, Customs and Border Protection has added an additional 17-day grace period from the effective date.

For more information, please contact Nicole Jenkins at njenkins@crowell.com in our Washington, DC office. 

2007 Trade Agenda – Fate of Trade Promotion Authority Looms Large. 

The 2007 U.S. trade agenda for opening overseas markets for U.S. businesses will be driven at least for the first six months of this year by the pending expiration of the President's Trade Promotion Authority (“TPA”) at the end of June.  The other major factor is the new Democratic-led Congress, which has criticized certain elements of the Administration's trade policy and has raised concerns about pending free trade agreements currently up for approval. 

The Administration's top trade-related priorities for the first half of 2007 will be the renewal of TPA, congressional approval of the free trade agreements (“FTAs”) with Peru, Colombia and Panama, the successful conclusion of the current FTA negotiations with Korea and Malaysia, and a successful re-start of the stalled WTO Doha negotiations to further liberalize markets for manufactured goods, agricultural products and services.  The degree of success in concluding any trade agreements in 2007 will depend in large part on whether TPA will be renewed by Congress.

Under TPA the Administration has the authority to negotiate international trade agreements such as FTAs and the current WTO Doha round negotiations with the certainty that Congress must consider the agreement within a short timeframe and give either an up-or-down vote, without any amendments.  Given that the current TPA will expire at the end of June, the ongoing Korea and Malaysia FTA negotiations must be completed by March 31 in order to qualify for the “fast track” approval process in Congress because TPA requires the President to notify Congress 90 days before the agreement is signed.  Completing either the Korea and/or Malaysia FTA negotiations by March 31 will be a significant challenge at best given the lack of agreement in most key sectors to date.  The Administration has stated that it will not sign off on an FTA with either country unless it is comprehensive and therefore, it is becoming less likely without major (and unpopular) political concessions from both sides that either negotiation can be completed under the current TPA deadlines.  With regard to the Doha negotiations, the beginning of this year has seen a renewed effort from U.S. and EU leaders to re-start the stalled talks and a firm commitment to successfully conclude the negotiations.  However, the renewal of TPA will loom large because even if the Doha negotiations are successfully re-started, it would be difficult for the U.S. to make any commitments (and thus preclude any progress) without TPA because other trade partners would view any agreement to be subject to likely congressional amendments and necessitate re-negotiation among the WTO members.

Throughout 2006, it was widely believed that Congress would not renew TPA, especially if the Democratic Party held a majority in the House.  However, since the beginning of this year, two key Democratic leaders that chair important trade-related committees — Senator Max Baucus of the Senate Finance Committee, and Representative Charles Rangel of the House Ways and Means Committee, have stated that they would support the renewal of TPA as long as there were additional provisions related to the protection of labor standards and the environment, as well as stronger trade enforcement.  Another factor that could strengthen support for TPA renewal is if the Administration can demonstrate that sufficient progress has been made in the Korea FTA and Doha negotiations to justify at least an extension of TPA to ensure a successful conclusion of these two economically significant agreements which enjoy broad support among U.S. industries and sectors.  The key to renewal will be whether Republicans in Congress and the Administration will be able to accept the additional labor and environment-related provisions that the Democrats will push or formulate an acceptable compromise between the two parties.

With regard to the pending FTAs waiting for congressional approval, several Democrats have criticized the labor and environment provisions of the FTAs with Peru and Colombia, with some calling for a re-opening of negotiations for these particular provisions.  The Administration will have to find a way to address these concerns in order to achieve passage of these FTAs by spring.  The Democratic-led Congress will not necessarily block the passage of any major trade agreement in 2007, but will most likely bring about more congressional oversight of the Administration's trade policy and changes in negotiating objectives for future trade agreements.

For more information, please contact Brian Peck in Crowell & Moring's California office at bpeck@crowell.com

Canada Can Take Full Advantage of ICSID. 

Canadian investors now have full access to an increasingly popular international arbitration forum.  The Canadian government recently signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which created the International Center for Settlement of Investment Disputes (ICSID), an autonomous international organization with close links with the World Bank. 

ICSID provides facilities for the conciliation and arbitration of disputes between member countries and investors who qualify as nationals of other member countries.  Recourse to ICSID conciliation and arbitration is entirely voluntary but once the parties have consented to arbitration under the Convention, neither can unilaterally withdraw its consent.  While ICSID conciliation is rarely used, ICSID arbitrations are on the rise and have proven effective. 

As a nonmember to the Convention, Canada and its nationals had limited recourse to ICSID arbitration under its Additional Facility Rules, provided another party to the dispute was a party to the Convention.  Arbitrations under the Additional Facility Rules provide fewer procedural guarantees than those under the Convention and, though technically binding, do not have the teeth of the Convention's enforcement provision. 

As a contracting state, Canada is now required by the Convention to recognize and enforce ICSID arbitral awards, regardless of whether it was a party to the dispute.  But Canada can now expect similar treatment from the 143 other signatories as well, including its NAFTA partner, the United States.  Moreover, Canada can now take advantage of the Additional Facility Rules in NAFTA disputes with Mexico since at least one of the two is now a party to the Convention. 

For more information on ICSID, NAFTA, or international investment disputes generally, please contact Chris Gagne at cgagne@crowell.com or Barry Cohen at bcohen@crowell.com in our Washington, DC office. 

Sanctions Focus — Pressure on Iran Continues. 

Even before the UN Security Council issued sanctions under Resolution 1737 in December, Iran admitted that sanctions were having an impact on its ability to finance oil projects.  Iran now faces a number of sanctions initiatives, both in the UN and beyond that will increase the pressure.  The UNSCR authorizes a wide range of actions, including the denial of financial assistance to entities and individuals associated with Iran's WMD programs.  The reformist faction of the Iranian parliament criticized President Ahmadinejad's government for the Security Council sanctions on Iran and charged that the UN's actions showed the foreign ministry was incapable of looking after Iran's national interests.  Having pursued such sanctions even before the UNSCR ["Iran: The U.S. hits Bank Saderat and Pursues 'Back Door Sanctions,'" International Trade Bulletin, Vol 1, Issue 14 (September 2006)] the U.S. now seeks great pressure on Iran through implementation of the UN sanctions at the national level among allies.

In the U.S., Iran has been the focus of action in Congress and the departments of Treasury and State. 

In Congress, with new leadership on the key committee for export controls oversight and embargo issues, the House Committee on Foreign Affairs held the first hearing of the new House session on Iran.  Chaired by Tom Lantos (D-CA), the hearing explored various policy approaches toward Iran.  Lantos called for engagement with Iran, and announced that he would hold a hearing on reports that China National Offshore Oil Corp.  (CNOOC) would develop natural gas resources in Iran.  Other recent deals are coming under scrutiny as well, including a recently announced $4.3B Repsol investment.

The Bush administration has already requested information from China on the deal under which CNOOC has agreed to participate in the development of the North Pars field in Iran.  The Administration is reviewing the reports as part of the process of determining whether sanctions under IFSA (formerly ILSA) are appropriate.  An administration official said, “[W]ith the recent unanimous adoption of … Resolution 1737, … we think this is a particularly bad time to be initiating major new commercial deals with Iran.”  China warned the U.S. not to interfere with its trade relations with Iran. 

Under the UNSCR, and under Executive Order 13382 June of 2005 — aimed at freezing the assets of WMD proliferators — the Bush Administration on January 9th designated Bank Sepah, Iran's fifth largest bank, as providing assistance to proliferators.  Bank Sepah joins Bank Saderat as a target of U.S. financial sanctions.  The measure will also affect North Korea, which had reportedly used the bank to facilitate payments to a North Korean group that exports missile technologies. 

In action under the Iran and Syria Nonproliferation Act, the State Department on December 23, 2006, identified twenty-four entities for sanctions, including a ban on government procurement and exports.  During an anticipated speech on U.S. Iraq strategy, President Bush said of Iran's role in Iraq, “We will seek out and destroy the networks providing advanced weaponry and training to our enemies in Iraq.”  U.S. forces recently raided an Iranian consulate in Iraq, and detained five Iranian employees. 

Many observers doubt Iran is prepared to meet the conditions for action required within 60 days of the UNSCR. 

For further information, please contact Carrie Fletcher or Jeff Snyder in our Washington, DC office at cfletcher@crowell.com or jsnyder@crowell.com. 

European Commission Issues Final Report On Sector Inquiry Into Electricity and Gas Markets and Proposes Action Plan to Open Up Energy Markets in Europe. 

After conducting an in-depth review of the European energy sector, the European Commission released the Final Report on the Sector Inquiry into Electricity and Gas Markets (“Commission Report”).  This inquiry was a consequent step following an initial promise by European Competition Commissioner Neelie Kroes to prioritize competition enforcement in the energy sector and to open up energy markets for greater competition. 

The Commission Report identified several problem areas in the energy sector which call for further action, including market concentration, vertical integration and cross-border market integration.  The Commission found that energy markets are too highly concentrated in the hands of former national monopolists who are engaging in practices which protect their market positions and profits and make it harder for new entrants to enter into the market.  The Commission also found that vertical integration in the energy field results in a lack of liquidity which prevents new entry.  Finally, the Commission found that there is an absence of cross-border integration and cross-border competition, as market players remain too national in their focus, and insufficient cross-border capacity and different market designs prevent newcomers from transporting energy throughout the European Union.

In order to address these issues and to reduce barriers to entry into the energy markets, the European Commission will rigorously apply a variety of both competition and regulatory-based remedies.  The Commission will forcefully pursue infringements of European competition law, including state aid control and increased scrutiny in merger control proceedings, and consider the possibility of imposing far-reaching structural remedies.  The Commission will also aim for full ownership unbundling.  In addition, the Commission will aim to improve the regulatory framework surrounding the cross-border energy supply by reinforcing coordination among national energy regulators and developing European Community oversight to ensure internal market interests.

Along with the Commission Report, the Commission also issued a communication to the European Council and the European Parliament calling for a coherent energy policy for Europe.  This communication introduces an action plan to combat climate change, limit the EU's external vulnerability to imported hydrocarbons, and promote jobs and growth, thereby providing secure and affordable energy to customers.  Key elements of this action plan include a commitment to further unbundling, effective regulation and establishment of a European regulatory body, harmonization of technical standards, including coordinated network planning, reduction in energy consumption and greenhouse gas emissions, and promotion of low carbon technologies, including renewable energy sources and clean coal technologies.

It remains to be seen whether the European Commission's proposals will find their way through the legislative process.  Nevertheless, these and other measures will be on the agenda of the European Council summit in March 2007.  Although the quick emergence of new legislation is debatable, it is likely that national regulators and competition authorities, as well as the European Commission, will gain new impetus in their mission of opening up energy markets in Europe.

For further information, please contact Dr Werner Berg at +32.2.282.4082, wberg@crowell.com or Jan Lohrberg at +32.2.286.1169, jlohrberg@crowell.com in our Brussels office. 

UK Begins Initial Review of Export Control Act. 

In November 2006 the United Kingdom Commons Quadripartite Committee set up to examine strategic export controls announced that it was undertaking “post-legislative scrutiny” of the Export Control Act 2002 and related Orders.  The Committee called for submissions from interested parties in relation to the efficacy of the new act and possible areas for improvement.

The first of the public hearings was held on 1 December 2006 and presentations were made by representatives of Saferworld, Amnesty International, Oxfam, Rolls-Royce plc, MBDA UK Ltd, the Defence Manufacturers Association and the Export Group for Aerospace and Defence.  Transcripts of their oral evidence can be found here: http://www.publications.parliament.uk/pa/cm200607/cmselect/cmquad/uc117-i/uc11701.htm

Overall, the speakers express satisfaction with the way the Export Control Act has been operating and with the flexible licensing approach which has been adopted by the Export Control Organization.  The representatives made various suggestions for changes to the Act including requiring overseas subsidiary's of UK companies to seek approval from their UK parent companies if they are planning on transferring controlled goods or strategic goods under the UK legislation.  As the legislation is currently drafted, the overseas subsidiaries of UK companies do not have to comply with the UK law as they are not governed by it.  The Export Control Act only takes effect if the UK parent company was involved in the activity.  Other suggestions included broadening the “catch-all” provision which currently applies to items intended for use in weapons of mass destruction to cover items which could be used for purposes of torture.  This would require exporters to obtain a license for such items if they knew or were informed by a competent authority that the goods were going to be used for purposes of torture.

Whether or not any of these suggestions will make it into law remains to be seen.  The formal review of the Export Control Act 2002 is expected to begin in May 2007.

For more information, please contact Tara Heron in Crowell & Moring's London office at theron@crowell.com.

European Commission Proposes New Measures for Dual Use Goods and Technologies. 

On December 19, 2006, the European Commission adopted a number of proposals related to the export control regime in place in the European Union.  These proposals are designed to (i) improve security by making export controls more effective, (ii) provide a more balanced regulatory environment for business and (iii) promote greater coordination in export controls internationally.

Among the proposals was a call for Member States to impose criminal sanctions on exporters who participate in serious export control offences.  These offences would include knowingly exporting goods for use in a WMD programme without having sought approval from the appropriate body in the relevant Member State or making false or misleading statements in the application for such authorization.  The UK Export Control Act 2002 and related Orders already contain provisions which impose criminal sanctions for such activities.

Other proposals include (i) improving exchanges of information between Members States, (ii) replacing current pre-authorization requirement for intra-EU transfers of certain items with a prior notification requirement and (iii) promoting the use of global licences which would require internal controls to be put in place by industry.

The Council of the EU must consider and approve these proposals before they can be implemented by Member States.  The summary of the proposals can be found at: http://ec.europa.eu/trade/issues/sectoral/industry/dualuse/pr191206b_en.htm.  The EU has invited exporters to express their views to the European Commission on January 26, 2007.

For more information, please contact Tara Heron in Crowell & Moring's London office at theron@crowell.com.

The listings for the 2007 edition of Chambers Global: The World's Leading Lawyers have been announced, and Robert MacLean, Jeff Snyder and Kristof Roox have all been ranked, along with special mentions for Dana Contratto and Jennifer Waters. In addition, the firm had three practice areas ranked including WTO/International Trade; USA, Energy: Electricity (U.S.), and Energy: Oil and Gas (U.S.). Congratulations! View the web announcement here.

Crowell & Moring Attorneys, Lorry Halloway and Carrie Fletcher are presenting a workshop on export controls requirements Saturday, March 3, 2007 in Orlando at Heli-Expo 2007.

Brian Peck, counsel in Crowell & Moring's California office, gave a presentation on CAFTA, important issues for U.S. businesses and U.S. Trade Policy in 2007 for the International Law Section of the O.C. Bar Association on January 22, 2007. Brian was also a panelist at the East Asian Trade and Investment Policy and Business Forum hosted by the Australian Consulate in Los Angeles on January 11, 2007 where he spoke on the impact of the emerging regional trade architecture in East Asia.